IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "E", MUMBAI
BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No.5962/M/2012
Assessment Year: 2009-10
M/s. Eastern International Deputy CIT 8(1),
Hotels Limited, 2nd Floor,
C/o. Novotel Juhu, Aayakar Bhavan,
Vs.
Balraj Sahani Marg, M. K. Marg,
Juhu, Mumbai 400 020
Mumbai ­ 400 020
PAN: AAACE2487L
(Appellant) (Respondent)
Assessee by : Shri R.C. Jain, A.R.
Revenue by : Shri Maurya Pratap, D.R.
Date of Hearing : 22.05.2014
Date of Pronouncement : 11.6.2014
ORDER
Per Amit Shukla, Judicial Member:
This appeal has been preferred by the assessee against impugned order
dated 06.07.12 passed by CIT(A)-16, Mumbai for the quantum of assessment
passed under section 143(3) for the assessment year 2009-10 on the following
grounds of appeal:-
"1. ADDITION ON ACCOUNT OF ALLEGED DIFFERENCE IN AIR
INFORMATION
(A) On the facts and circumstances of the case and in law,
the learned CIT(A) erred in confirming the addition of
Rs.1,70,719/- made by the Assessing Officer under section
69C of the Income-tax Act for alleged liquor purchases from
M/s. Mansha Agencies Private Limited.
(B) On the facts and circumstances of the case and in law,
the ld. CIT(A) erred in confirming the addition of Rs.92,161/-
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M/s. Eastern International Hotels Limited
made by the Assessing Officer for alleged difference in liquor
purchase by the appellant.
(C) The lower authorities erred in failing to appreciate that
the appellant has sufficiently and substantially reconciled the
AIR information and they ought not to have made/confirmed
any addition for alleged purchases.
2. LOSS OF TRADING STOCK DUE TO FIRE:
(A) On the facts and circumstances of the case and in law,
the ld. CIT(A) erred in rejecting the claim of the appellant for
deduction for business loss of trading stock of Rs.12,66,898/-
destroyed in fire in appellant's hotel during the relevant
previous year.
(B) On the facts and circumstances of the case and in law, the
ld. CIT(A) erred in not directing the Assessing Officer to allow
deduction for the above business loss for which full details were
made available in the return of total income and during
assessment proceedings. He further erred in not appreciating that
the loss in relation to stock-in-trade is an allowable business
deduction."
2. The brief facts qua the issue raised in ground No.1(A) and 1(B) are that,
the assessee is engaged in the business of running hotel and related activities.
It had one hotel at Juhu, Mumbai and second hotel at Goa. The Assessing
Officer had received AIR information that the assessee had purchased liquor
worth Rs.1,70,719/- from M/s. Mansha Agencies Private Limited on which
TCS has been collected. In response to the show cause notice, the assessee
submitted that it had not made any purchase from this party at all. To verify
the assessee's contention, the Assessing Officer issued notice under section
133(6) to the said party asking for the details made by it to the assessee
company. However, the requisite information could not be received in
response by the Assessing Officer and hence, he held that the sum of
Rs.1,70,719/- is as an unexplained expenditure under section 69C. The
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M/s. Eastern International Hotels Limited
Assessing Officer further observed that the assessee had been unable to
reconcile the difference of Rs.92,161/- on account of purchase made from
various parties. The assessee submitted that the difference could have been on
account of different factors such as inclusion and exclusion of local taxes etc.
The Assessing Officer did not accept the assessee's contention and added the
said amount to the income of the assessee.
3. Before the ld. CIT(A), the assessee submitted that it had purchased the
liquor from many vendors, who collect 1% TCS under section 206 of the Act
on the cost of the liquor purchase. These vendors issued certificates for the
TCS collected by them on which the assessee is entitled to get credit as prepaid
taxes. It was submitted that the assessee's hotel at Juhu was temporarily
closed down through out the previous year on account of on going repair and
renovation work. Hence, there was no sale of liquor from this hotel and
accordingly there was no purchase of any liquor for Juhu hotel. It was further
submitted that all the purchases of the liquor and the TCS certificates pertained
to Goa hotel only. Thus, there was no occasion to buy the liquor from M/s.
Mansha Agencies Private Limited. It was further contended that the onus or
the initial burden for verification of the purchases was discharged and if any
information was received through AIR, then the Assessing Officer should have
brought the material on record to prove the contrary. With regard to the
addition on account of un-reconciled difference in liquor purchase of
Rs.92,161/-, it was submitted that assessee had duly placed all the details of
purchases made by the vendors which were also recorded in the books of
account. Without making any further inquiry there was no reason for making
such an addition. It was also submitted that assessee's GP ratio on sale of
F&B for the year under appeal was at 75.25% as compared to the earlier year
at 74.51%.
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M/s. Eastern International Hotels Limited
4. The ld. CIT(A) rejected the assessee's contention on the ground that,
once the department has definite information, then onus was on the assessee to
get the confirmation from the aforesaid parties, which was done. Having not
discharged the burden to prove that it had not made purchases, the assessee's
ground on this score was dismissed.
5. Before us, the ld. counsel for the assessee submitted that, once the
assessee categorically denied of making any purchase from the said party, then
onus was upon the department to show that the AIR information is correct and
is also corroborated by cogent material on record. In any case, he submitted
that the assessee had pursued the matter with the M/s. Mansha Agencies
Private Limited later on, who had directly sent confirmation letter to the
Assessing Officer vide letter dated 12.04.2014 wherein they have categorically
admitted that no supply of liquor was made to the assessee for Juhu hotel and
there was some kind of mix-up at their end. Therefore, assessee's contention
now gets fully corroborated by this evidence. Since this evidence was not
there before the Assessing Officer and ld. CIT(A), therefore, a petition for
admission of additional evidence under rule 29 has been filed before us for
admitting the same, as it clearly clinches the adjudication of the said addition.
As regards the addition on account of Rs.92,161/-, he submitted that the
assessee had already submitted complete bill-wise details of purchases from
the vendors which have been duly incorporated in the books of account. If
there was any difference on account of TCS details by the other party, the same
should have been inquired by the Assessing Officer from these vendors. Thus,
without any contrary material on record, assessee's entry in the books of
account cannot be rejected for making the addition.
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M/s. Eastern International Hotels Limited
6. On the other hand, the ld. D.R. strongly relied upon the order of the ld.
CIT(A) and submitted that the onus was upon the assessee to show that such a
purchase was not made by the vendors. This onus could have been discharged
by furnishing the confirmation letters from these parties. Regarding the
additional evidence which has been filed by the assessee, he submitted that the
same should be verified by the Assessing Officer and therefore, the matter
should be restored back to the file of the Assessing Officer.
7. We have heard the rival submissions and also perused the relevant
material placed on record. The Assessing Officer has made the addition,
mainly on the basis of AIR information received by him that the assessee had
purchased liquor worth Rs.1,70,719/- from M/s. Mansha Agencies Private
Limited which is not reflected in the accounts of the assessee. Once this was
confronted, apart from denying any purchase made from the said party, the
assessee has reconciled the purchase recorded in its books of account vis-à-vis
the bills, and also submitted that it has not carried out any business from the
Juhu hotel. Once the assessee has discharged its initial onus of reconciling the
purchases vis-à-vis the bills in its book of account, then burden shifts on the
Revenue to show that such an information is corroborated by cogent material
on record that the assessee had made purchases from this party. If such
material is not brought, then no adverse inference should be taken. However,
in this case, now the confirmation from the said party has been received by the
department vide letter dated 12.04.14. Since this confirmation was not
available with the Assessing Officer as well as ld. CIT(A), therefore in the
interest of justice, we admit this additional ground and remit the matter back to
the file of the Assessing Officer to verify the said confirmation letter and
accordingly decide the issue as raised in ground No.1(A).
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M/s. Eastern International Hotels Limited
8. As regards the addition of Rs.92,161/- which is on account of alleged
difference in liquor purchase, we agree with the contention of the ld. counsel
that, once the assessee has reconciled all the purchases recorded in the books
of account from the bills, then for making further addition the Assessing
Officer should have made out a preliminary inquiry from the vendors about the
quantity of sale made by them to the assessee. On this score also we feel that
in the interest of justice, the matter should be restored back to the file of the
Assessing Officer who shall carry out necessary inquiry or verification from
the vendors from whom the assessee had made purchases and accordingly
decide the same after giving an opportunity of hearing to the assessee.
9. In the result, ground No.1(A) and ground No.1(B) are treated as allowed
for statistical purposes.
10. In ground No.2, the assessee has challenged the claim for disallowance
of deduction for business loss of trading stock of Rs.12,66,898/- on account of
fire in assessee's hotel during the relevant previous year. The facts in brief are
that, during the previous year ending on 31.03.09, there was an incident of fire
in assessee's hotel at Juhu. Due to the fire there was loss of fixed asset as well
as stock of operating supplies like linen,crockery, cutlery, etc. aggregating to
Rs.38,19,687/-. This loss included the loss of Rs.12,66,898/- on account of
loss of operating supplies. This entire loss was added to the total income of the
assessee in the computation of income filed along with the return of income.
However, during the course of the assessment proceedings, the assessee vide
letters dated 20.07.11 and 07.12.11 claimed deduction on account of loss of
stock of Rs.12,66,898/- along with the details of fire and insurance claim
before the Assessing Officer. It was also brought to the notice of the Assessing
Officer that the insurance claim including the above loss was settled and
received in the next year which has been offered for tax in the year 2010-11.
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However, the Assessing Officer did not give any finding on this score and
disallowed the said loss as claimed by the assessee before him.
11. Before the ld. CIT(A), the assessee submitted that, the first appellate
authority has the power to entertain such claim and also relied upon various
decisions in support of its contention. It was further submitted that the loss
was on account of stock-in-trade which is always on the Revenue's account
and has to be allowed. It was also brought on record of the ld. CIT(A) that the
written down value of fixed assets and stock-in-trade destroyed were for the
value of Rs.38.20 lakhs against which, it has realised a sum of Rs.49.72 lakhs
from the insurance company and such payment received from the insurance
company has been offered for the tax in the subsequent year. Thus, in this year
the loss of stock-in-trade at Rs.12,66,898/- should be allowed. The ld. CIT(A)
rejected the assessee's contention on the ground that such a fresh claim cannot
be entertained by the ld. CIT(A) as it amounts to revising of the return of
income which is not permissible, in view of the Hon'ble Supreme Court's
decision in the case of M/s. Goetz (India) Ltd. reported in (2006) 284 ITR 323.
12. Before us, the ld. counsel submitted that the loss on account of stock-in-
trade is always on the Revenue's account which has to be allowed as deduction
while computing the profits under section 28 of the Act. The assessee had
furnished all the necessary evidences with regard to the actual loss before the
Assessing Officer as well as before the ld. CIT(A) which has not been
disputed. Further, it has also been brought on record that the assessee had
offered the insurance claim in the next year as taxable income and therefore,
such a disallowance of loss in this year will amount to double taxation. As
regards the finding of the ld. CIT(A) that such a claim cannot be made before
the ld. CIT(A), he submitted that the decision of the Hon'ble Supreme Court in
the case of M/s. Goetz (India) Ltd. (supra) does not apply on the claim made
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M/s. Eastern International Hotels Limited
before the ld. CIT(A) or the Tribunal. This has been clarified by umpteen
number of decisions by the various courts. Thus, assessee's claim for loss on
account of loss of stock-in-trade of Rs.12,66,898/- should be allowed as
business deduction.
13. On the other hand, the ld. D.R. has strongly relied upon the order of the
ld. CIT(A) and submitted that such a claim for deduction should have been
made only by way of a revised return of income and not by way of a letter
before the Assessing Officer.
14. We have heard the rival submissions and also perused the relevant facts,
material placed on record and the finding of the ld. CIT(A). So far as the
factum of loss of stock-in-trade due to fire in the relevant previous year has not
been disputed. In any case, this is also prima facie borne out from the various
evidences placed before us in the paper book. If it is a loss on account of
stock-in-trade, then definitely it is on revenue account and has to be allowed as
deduction while computing the profits under section 28 of the Act. The only
ground on which assessee's claim has been rejected by the ld. CIT(A) is that,
such a claim cannot be made for the first time before the Assessing Officer or
before the ld. CIT(A), as it tantamounts to revising of the return of income.
Such a ground is not tenable, as the decision of the Hon'ble Supreme Court in
the case of M/s. Goetz (India) Ltd. (supra) is only limited to the claim for
deduction made before the Assessing Officer by way of a letter. However, it
does not impinge upon the power of the ld. CIT(A) to entertain such a claim if
all the relevant facts and material have been brought on record. Further, in this
case the assessee has also brought on record that it has received the insurance
claim on account of loss due to fire in the subsequent year and the same has
been offered for the tax in the A.Y.2009-10. Under these facts and
circumstances, we are of the firm opinion that this entire issue of claim of
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deduction of loss should be sent back to the file of the Assessing Officer who
shall examine the assessee's claim on merits, after verifying the relevant
material on record and the assessee's contention, and then decide this issue in
accordance with the law. The Assessing Officer will also provide due and
effective opportunity of hearing to the assessee to present its case. Thus,
ground No.2 is treated as allowed for statistical purposes.
15. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 11th June 2014.
Sd/- Sd/-
(Sanjay Arora) (Amit Shukla)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 11.06.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR "C" Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.